Financial Reports & Markets
What is the way forward?
By Cindy Macdonald
No one has a 360-degree view of the forces that could influence the pulp and paper sector going forward, but the following specialists each offer a unique perspective from their field of expertise. Here are some predictions for various sectors that intersect with pulp and paper production. These forecasts and commentary were presented at recent North American industry events.
Doing business in a resource-constrained world
On the subject of natural resources, Peter Berg of the management consulting firm McKinsey & Co., said small changes are not enough. “We need to be more than incremental going forward.”
Berg is the director of knowledge for McKinsey’s global paper and forest products practice, and was a speaker at PaperCon 2015.
It has been well documented that as global population grows and the middle class expands, supply challenges in minerals and water can be expected. Water, Berg noted, is becoming more and more inter-connected with other resources, such as food and energy. For example, in India in 2012, shortages of water led to blackouts.
“We need to get into a regime of higher productivity of resources,” said Berg. To achieve that higher level, McKinsey’s view is that these items – nanotechnology, biology, software, systems engineering, interchangeable parts – will be required in management’s toolkit.
McKinsey also identifies five levers for more effective use of resources:
· reduce waste,
· substitute (use less resource-intensive choices)
· circularity (reduce, rework and recycle)
· optimize (by networking, for example, peer-to-peer
· virtualize (one speaker at Papercon appeared by video, for example)
Berg highlighted North America’s love affair with the car as one system that engenders a lot of structural waste. He noted that the typical American car spends 96% of its time parked, 86% of the fuel it consumes is not delivered as power to the wheels, and peak throughput on the road network is achieved only 5% of the time.
In pulp and paper specifically, he said fibre yield improvement seems to be slowing and we can expect more strict regulations in land use, water conservation and waste. “We need to pull other levers to maximize the use of fibre,” he said.
Berg noted possibilities in smart packaging and non-wood fibres for paper. He also suggested more holistic system thinking.
“Arguably, our biggest contribution could be from the bio-economy.” According to Berg, if 5% of the world’s pulp lines were to extract hemicellulose as sugar, it could boost the world bio-polymer supply by 50%.
Berg was not complimentary about the pulp and paper industry’s ability to meet the challenges of a resource-constrained economy. He said what most pulp and paper companies are doing now is materials development. In comparison, for the plastics industry, he noted that “time to adoption” studies have shown it takes 24.8 years to get a product into complex value streams.
“I would argue that many pulp and paper companies don’t have the skills to do this,” Berg concluded. “The way forward will require large strides in process, product and business model development.”
Nanotechnology for packaging within 10 years
Sean Ireland, a former chair of TAPPI’s Nano Division, boldly stated at Papercon 2015 that nanocellulose will be widely available within 10 years. During a conference session on the future of packaging, Ireland outlined the potential benefits that the addition of nanocellulose materials can bring to packaging. He described how nanocellulose applied to the surface of a sheet can make it suitable for printed electronics, by making it more smooth. But he also noted that these materials will require changes to board- and box-making machinery. Substrates made of or with nanocellulose materials could be orders of magnitude thinner that what packaging equipment can currently handle.
Nanocellulose-enhanced substrates are also stronger, said Ireland. “We’re talking gigapascals of strength improvement, while getting thinner, smaller and smoother.
“That changes everything.”
Ireland believes that traditional research labs trying to treat CNC as pulp are taking “the wrong tack.”
Currently, industry is reaching “up to 40% of the strength potential of nanocellulose,” said Ireland. He predicted the price of these materials will drop. “I can tell you, CNCs (cellulose nanocrystal) will be less than $2/kilogram.”
He said to boxmakers and packaging manufacturers: “I guarantee it’s going to hit your market. If you’re not planning for it, you’re behind the curve already.”
Put your money on biofuels and biochemcials
Biofuels are more attractive to strategic investors than biomass electricity, said Don Roberts in a keynote address at the BioEnergy Exhibition and Conference, held in Toronto on May 20-21. Roberts, an expert on financing the bioeconomy, commented that “the relative attractiveness of biomass-based electricity is going to going to get worse,” compared with other forms of renewable electricity. With advances being made in power storage, the competitive advantage that biomass has as an “on-demand” power source is diminishing. “There is a role here for biomass, but we need to focus on what’s unique about biomass. Liquid fuels and chemicals, that’s where the game is.”
Roberts is president and CEO of Nawitka Captial Advisors Ltd. He has been an analyst of the resource sector and financial services executive for many years, and was a key contributor to the Forest Products Association of Canada’s Future Bio-pathways project, which evaluated paths for the Canadian forest products industry to participate in the bio-economy.
Roberts suggested to that companies seeking investors should focus on technologies that create “drop-in” biofuels which use the existing petrochemical refining and fuel infrastructure. Choose technologies that use multiple feedstocks, because investors want flexibility, he said. Avoid ethanol, because of the blend wall and the high cost of forest biomass relative to non-wood feedstocks.
Roberts’ firm has continued to do the type of analysis that characterized the FPAC biopathways project. This type of analysis is highly localized, and examines the return on capital employed (ROCE) of various technologies and combinations of technologies. Using the example of an analysis for the B.C. Interior region, Roberts concluded that stand-alone kraft pulp mills could improve ROCE by about 50% by integrating selected biofuels technologies.
Roberts suggested that the biomass cost must be less than about $60 per ODMT for a bioenergy project to succeed. This can likely only be achieved by mixing a variety of sources. Sawmill residue and chips, for example, doesn’t even come close to this cost. Forest residues and hog fuel come closer, but to really bring the costs down, it will likely be necessary to bring municipal solid waste or fast-growing energy crops, such as miscanthus, into the mix.
Speaking as an investment counselor, he said, “If you don’t have a weighted average cost less than $60, I won’t look at it.”
Data vs. information in forest management
In late March, a policy dialogue convened by the Public Policy Forum and project partners brought together corporate, environmental and First Nations leaders, as well as academics and policymakers from across Canada.
The findings from this discussion are synthesized in a report by the Public Policy Forum, developed in partnership with the Forest Products Association of Canada and Natural Resources Canada, which identifies the need for greater collaboration among sectors to help improve the forest industry for generations to come.
In recent years, the availability of forest and conservation data and its dissemination by the Internet has changed the conversation, said Wynet Smith, executive director of Forest Watch Canada, during the #FutureofForestry discussion. She believes that publicly available data is crucial to managing our forests, but noted that non-standardized definitions are an issue and so are vague data.
“The danger for us, I think is … being defined by others,” said Pierre Bernier, research scientist with Natural Resources Canada, Canadian Forest Service. For example, he said, groups such as the World Resources Institute, the Japanese and the Europeans interpret our data, and that interpretation becomes public dialogue.
“We may be the only country that has the challenge of managing an immense national forest sustainably,” said Bernier. “We have 70 years, at most, of science-based management.”
Bernier explained that forestry information exists at multiple scales. At the smallest scale, researchers measure trees, take soil samples, and gather field data. At another level is the landscape data, traditionally gathered through photo interpretation, measuring height, density, species. Now the industry has satellite date and LIDAR, creating datasets that are an almost unimaginable size.
The #FutureofForestry: Sustainable Solutions report summarized the situation this way: “Open data can be a dynamic and innovative way to engage the public as it enables reporting on forestry practices, facilitating communication and the sharing of best practices around the world.
Although an open platform increases the global profile of Canada’s forests, sometimes data may be repurposed, stripping the material of its context… As a result, a well-intentioned researcher may inadvertently compare two datasets that have little in common.”